What Makes Convenience Food a Go-to Category for F&B Players
According to reports, India's RTE food market stood at $261 million in 2017 and is projected to grow at a CAGR of over 16 per cent during 2018-2023 to reach $647 million by 2023
With restaurants shutting down, the demand for ready-to-eat (RTE) and ready-to-cook (RTC) categories skyrocketed during pandemic-led lockdowns. The absence of house helps and cooks further pushed consumers to look for options that would save them time in the kitchen. However, as things resumed normalcy and restaurants opened up, have RTE and RTC categories lost their charm, or have the food and beverage (F&B) businesses achieved habit-formation in these categories? That's what we explore in this article.
The opportunity in the post-pandemic world
According to reports, India's RTE food market stood at $261 million in 2017 and is projected to grow at a CAGR of over 16 per cent during 2018-2023 to reach $647 million by 2023.
RTE and RTC are two very different segments. The first involves no cooking at all and the latter gives consumers a certain control over the ingredients, cooking process etc. Over the past few years, the RTC sector has also shown strong growth year on year. According to a report, non-frozen RTC is expected to grow at a faster pace compared to frozen RTC food and the mix of frozen and non-frozen RTC is expected to evolve from 73:27 per cent in 2019 to 70:30 per cent by 2024.
"RTC categories spiked during COVID as people ordered in a variety of foods to bring the dining-out experience home. In fact, RTC was among a few categories that saw an increase in sales during the peak of lockdown. However, post-pandemic consumers are more focused on foods that are healthier and more convenient to prepare. We will continue to see the growth of RTE/RTC products that are healthier and resonate with consumers' preferences for sustainable living," said a spokesperson from Licious.
Licious claims that the category has been growing at a staggering rate for the company and contributes to appx 20 per cent of the total revenue.
Talking about the capital flowing into the segment, Ankur Mittal, co-founder, Inflection Point Ventures said, "Over the past two years, $42.3 million have already been invested in funding businesses that have entered this industry in India alone. The market for ready-to-eat foods in India will continue to expand due to the rising demand for fast food, the freshness and the high nutritional content of products."
India has more than 400 companies that have been operating in the market of convenience foods. "Newer companies have been seeing an investment of over $53.2 million in 2022 alone. As we know, lifestyles will continue to get busier and more active for most of the working population and that is the primary target group of the startups in this sector," he added.
"While RTC has been around for some time in the form of instant noodles, instant soups, frozen food etc it was during the pandemic that the demand for products beyond snacking- something for main course/family meals and non-frozen, saw a significant surge. The two years of the pandemic were an inflexion point for the RTC segment, in terms of building awareness and acceptance for the category. Post pandemic, we have seen that cooking is no longer seen as a chore, it's an adventure for some or an indulgence, comfort or reward for others. So products that make that easier and more delightful, are something that customers are experimenting with. They still want to cook at home, but with a little help from RTC products say Curry pastes," said Richa Sharma, co-founder, CURRYiT.
Favorable factors and target group
Factors such as rapid urbanization, family nuclearization, and time paucity due to women joining the workforce can be attributed to the growth of these categories. And most dishes are made with just one utensil, which reduces cleaning and messes significantly for those living abroad. "Rising urbanization and increasing middle-class disposable income contribute to the market's anticipated expansion. Ready-to-eat food has become more popular among consumers since it can be used to replace a regular diet and has a longer shelf life, making it simple to keep for later use," said Mittal.
"We have seen that customers value convenience but they don't want a fully cooked meal coming out of a packet. They would prefer to cook but with a little help, preferably something that reduces 80-90 per cent of the effort of cutting or chopping and getting the recipe right," said Nischal Kandula, co-founder, CURRYiT.
The ideal customer groups for RTE and RTC are working professionals, young couples, nuclear families, youngsters staying away from family for study or work, and overseas travelers. Indian population residing in other countries has also created an opportunity for the export of RTE and RTC products. Further, when parents travel to meet their children living in other counties, they often carry products from these categories.
"Not all the people in this target market will be the same, and ready-to-eat and ready-to-cook items are no different because every person is an individual with specific preferences and tastes. Brands should distinguish between the many types of people in the target audience by creating buyer personas, which would enable them to see customers as actual people," said Mittal.
Capturing hinterland and hurdles
Startups claim that Tier II and III cities are also seeing quicker adoption. They claim that rural India also provides a great opportunity for RTE and RTC companies to expand. "We have seen acceptance of RTE and RTC products in a couple of categories such as breakfast and cereal, and snacks. But the growth has been slow as compared to urban regions due to the limitation around product distribution in smaller towns and consumer skepticism with respect to nutritional benefits. Having said that we feel the trend to pick up in smaller towns as they catch up with tier I cities," said Ankur Bansal, co-founder and director, BlackSoil.
Companies that have existed for over a decade now, like Haldirams and Venky's, have already set up well-established distribution channels in smaller cities. Larger FMCG conglomerates like ITC and Amul have also realized this sector's potential and have introduced newer versions of their existing products to capture the attention of the consumers. "Today, social media has also helped these RTE and RTC food categories in gaining popularity, consequently increasing the demand for convenience food in various cities in India," said Mittal.
However, there are still some challenges that need to be addressed. "The major challenges faced by companies are - skepticism with regards to nutritional benefits and freshness of the product, consumer perception that an RTE or RTC product will cost more on a per-serving basis, and maintaining the taste and quality of the product due to increased competition," said Bansal.
Mittal feels that with so many options already out on the market, companies in this sector must determine whether there is a market for the product or is it oversaturated. Determine whether a similar version of your product is already available. Examine the target market, geographical areas, and key ways in which your product differs from those in the competition, he said.